U.S.’s massive foreign debt key to new trading bloc: ASEAN+ China

Posted on November 20, 2012


PHNOM PENH, Cambodia — Ten Southeast Asian nations said Tuesday that they would begin negotiating a sweeping trade pact that would include China and five of the region’s other major trading partners, but not the United States.

ASEAN-China is the largest FTA in population size and includes 1.9 billion total people. It is the third largest FTA in economic size, with a cumulative GDP of US $5.8 trillion.

The proposal for the new trade bloc, to be known as the Regional Comprehensive Economic Partnership, is enthusiastically embraced by China. The founding members, who belong to theAssociation of Southeast Asian Nations, said at the close of the association’s summit meeting here that the bloc would cover nearly half of the world’s population, starting in 2015.

>> Asean leaders begin RCEP negotiations
>> $20 trillion Asia trade bloc planned
>> Asian Leaders Discuss Vast Free Trade Region
>> U.S., southeast Asian nations start trade initiative

The new grouping is seen as a rival to a trade initiative of the Obama administration, the 11-nation Trans-Pacific Partnership, which includes many of the same countries but excludes China.

The announcement came as China was facing pressure to back down from its hard-line stance in its disputes with four Southeast Asian countries over ownership of islands in the South China Sea.

Five nations at the summit meeting, including Singapore and Indonesia, demanded changes related to the issue in two communiqués that were drafted by Cambodia, the host of the meeting and an ally of China with no claim to the islands, according to a statement issued by Singapore.

The initial draft of one of the communiqués, intended for the association to issue, said that its members, by consensus, did not want the South China Sea issue to be “internationalized” — meaning that the United States and other countries with interests in the security of the sea, one of the world’s busiest trade routes, would have no say in the rules of the body of water.

China said Monday that such a consensus existed. But the Philippines, an ally of the United States, publicly protested China’s position, and was joined Tuesday by Singapore,Brunei, Indonesia and Vietnam. The final text of the communiqué omitted the reference to a consensus, the statement by Singapore said.

The second communiqué, for the concurrent East Asia Summit, left out any mention of the South China Sea in the initial draft, even though the five members wanted the issue to be included. That communiqué, too, was amended.

In a direct criticism of China’s position on the South China Sea, Prime Minister Lee Hsien Loong of Singapore said at the East Asia Summit that he hoped the Association of Southeast Asian Nations and China would soon start formal talks on a code of conduct that would reduce the risk of conflict over the sea. China has balked at such urgency.

“Talks on a code of conduct will help manage the disputes and prevent conflict which will be bad for everyone,” he said.

The announcement of the proposed trade pact ended the talks on an upbeat note, despite the underlying tensions between the proposal and the Trans-Pacific Partnership, which was announced last year as part of the Obama administration’s shift of focus toward Asia, the region with the fastest-growing economy.

One of the stops on President Obama’s just-completed trip to Asia was in Thailand, in part to welcome its interest in joining the American-backed trade initiative, which has held more than a dozen rounds of negotiations.

China, on the other hand, has gone out of its way to express its support for the new proposed bloc. Its members would be the 10 countries that make up the Association of Southeast Asian Nations, plus 6 nations that have free-trade agreements with the association: Australia, China, India, Japan, New Zealand and South Korea.

“We uphold regional economic integration, and this is a way to fight against the global financial crisis,” Fu Ying, a Chinese vice minister for foreign affairs, said of the proposal at a briefing in Beijing last week, adding, “We will actively support the negotiating process.”

Some analysts in Asia describe the Obama administration’s trade initiative as one element in a policy to contain China, the world’s largest producer and exporter of manufactured goods.

“China’s exclusion is strange, given its huge economic presence in the Asia-Pacific” region, Amitendu Palit, a visiting senior research fellow at the Institute of South Asian Studies at the National University of Singapore, wrote in a recent edition of East Asia Forum. “This has given rise to views that the United States is driving the Trans-Pacific Partnership with the strategic objective of marginalizing China.”

At the briefing in Beijing, Liang Wentao, an official of the Ministry of Commerce, said that China had studied the proposed bloc backed by the United States and had concluded that the bar for meeting its requirements was “very high.” He said China had not received an invitation to join it.

Mr. Obama alluded to it during a presidential debate, implying that one of its objectives was to set the standards for entry above what China could now meet.

“We’re organizing trade relations with countries other than China so that China starts feeling more pressure about meeting basic international standards,” Mr. Obama said.

One criticism in Washington of the proposal supported by China is that countries need to do little to join and would be allowed to continue practices like protecting state-run enterprises.

New York Times

Asia Leaders Push Regional Trade Pact

PHNOM PENH—A plan by Asian leaders to start talks on one of the world’s biggest trade pacts could accelerate the global economy’s shift to the fast-growing region and would overshadow Washington’s separate push for a trade deal with Asia.

Reuters – Australian Prime Minister Julia Gillard greets U.S President Barack Obama.

Sixteen countries including China, Japan, India and Australia are aiming to establish the Regional Comprehensive Economic Partnership, or RCEP, which officials say will allow a greater flow of goods and services and avoid a “noodle bowl” of overlapping deals—even as countries within the region pursue bilateral and trilateral trade agreements.

If successful, the trading bloc would cover a combined economic output of $20 trillion, or almost one-third of the global economy.

Asia’s economic growth has tapered off in the past year but has held up relatively well as a whole against a slowdown in Europe and the U.S., supported by improved domestic demand. That demand in turn has helped buffer Europe and the U.S. from an even greater downturn and put the focus on trading opportunities with the region and among Asian nations themselves.

The negotiations are expected to officially start on Tuesday at the conclusion of the annual East Asia Summit and meetings of the 10-member Association of Southeast Asian Nations, which has driven the idea. Officials hope to have the talks concluded by the end of 2015.

“The Japanese have been very supportive, the Chinese have been supportive, the Australians have been rather eager, the Indians are also very interested in this, because in the end we are creating a new landscape,” Asean Secretary-General Surin Pitsuwan said.

Reaching agreement won’t be easy. Asian nations already have a string of bilateral trade deals in place but have struggled to form a regional pact as governments have been eager to protect sensitive sectors. Japan wants to shield its agriculture sector and South Korea wants to shield its rice industry, for example.

The RCEP launch also comes as senior officials from China, Japan and Korea are discussing starting trilateral free-trade negotiations.

But that initiative isn’t a threat to the wider plan, said Indonesia’s trade minister, Gita Wirjawan. “We might see that as an impetus for us to work a little more efficiently and diligently,” Mr. Wirjawan said of the three-way talks. “There may be a yardstick that’s being utilized by the three countries that may be applicable or useful to what we are trying to achieve.”

The RCEP process has the potential to slow—or even undermine—the U.S.-led Trans-Pacific Strategic Economic Partnership, which includes a raft of smaller Asian countries plus Australia, New Zealand and others, but not China. The TPP has already been hampered by disagreements over the treatment of state-backed enterprises, among other things.

“We will be doing everything we can to press forward with both sets of discussions,” Australian Prime Minister Julia Gillard told reporters ahead of talks here on the TPP with U.S. President Barack Obama. “How these negotiations for each roll out, how they will ultimately relate to each other is something that will develop during the course of the discussions,” she said.

Indonesia’s trade minister said that Asian governments should be careful not to overreach with a complex web of separate negotiations.

“At the end of the day we have to be realistic about it in terms of bandwidth allocation,” Mr. Wirjawan said. “Policy makers have to be cognizant of the extent to which they can allocate their resources and time.”

To push the RCEP through, negotiations may focus on broad-brush statements and avoid sensitive areas. “I don’t think we can achieve a high-level free trade agreement like the TPP. That is a challenge. We’ll have to adjust and accommodate each other, and find common ground,” said Takeshi Komoto, director for free trade negotiations at Japan’s Ministry of Economy, Trade and Industry.

A broader deal than the detailed TPP “might be an easier trade agreement to negotiate,” said Mireya Solis, a senior fellow at the Brookings Institution.


Asian Economies Aim for Trade Deal as Sea Dispute Set Aside

China, Japan and South Korea started talks on a free-trade agreement vital to an Asia-wide deal in a move to forge closer economic ties even as they spar over disputed islands.

The countries, representing three of Asia’s four biggest economies, will hold the first round of talks early next year, they said in a joint statement. Those negotiations are key to the Regional Comprehensive Economic Partnership, a 16-nation accord also announced yesterday that Southeast Asian countries called “the world’s biggest regional free trade deal.”

Lee Myung Bak, South Korea’s president, left, with Wen Jiabao, China’s premier, and Yoshihiko Noda, Japan’s prime minister, at the Association of Southeast Asian Nations (ASEAN) plus three summit in Phnom Penh, Cambodia. Source: The Asahi Shimbun via Getty Images

“The missing piece of the jigsaw puzzle as far as Asia is concerned is the agreement among the three Northeast Asian countries,” said John Ravenhill, a professor at Canberra-based Australian National University. “The negotiations that were supposed to have started between those three countries have been put on hold because of the disputes over the South China Sea and other islands.”

Competing visions for an Asia-Pacific trade bloc reflect the struggle for dominance by economic powers over a region that is increasingly a driver of global growth. U.S. President Barack Obama is seeking to expand trade ties with Asian nations and regain economic influence among countries that are growing more reliant on China in an area that contains sea lanes vital to world commerce.

Clinton Invitation

Last week Secretary of State Hillary Clinton welcomed China and other Asian nations to join the 11-country Trans-Pacific Partnership that the U.S. aims to combine with other regional trade agreements to transform global commerce. Thailand and Japan are interested in joining the talks, Ben Rhodes, White House deputy national security adviser, said yesterday.

“They’re committed to getting those negotiations concluded with an aim to doing so next year so that they can complete that trade agreement,” he said in Phnom Penh, Cambodia, after Obama met with leaders from countries involved in the TPP talks.

The discussions on trade proceeded even as China’s territorial disputes surfaced at five days of meetings in Cambodia hosted by the Association of Southeast Asian Nations that ended yesterday. Obama, who met with Japan’s Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao separately yesterday, called the U.S.-Japan military alliance the “cornerstone” of regional security.

Increasing Severity

“With the increasing severity of the security environment in East Asia, the importance of the Japan-U.S. alliance is increasing evermore,” Noda, who faces re-election next month, said in a meeting with Obama. “I would like to proceed with concrete cooperation to develop our alliance.”

China has demanded that Japan withdraw from its September purchase of islands known as Senkaku in Japan and Diaoyu in China. Anti-Japan protests have reduced China sales at Toyota Motor Corp. (7203), Nissan Motor Co. and Honda Motor Co.

“It’s not good, to be honest,” Qin Gang, a spokesman for China’s foreign ministry, told reporters yesterday, referring to his country’s relationship with Japan. “But the reason is not on China’s part.”

Wen downplayed the disputes yesterday and urged leaders to focus on maintaining the peace and stability that has underpinned Asia’s economic growth since World War II, according to Fu Ying, China’s vice foreign minister. China has been Asean’s largest trading partner since 2009.

“We do not want to give overemphasis to the territorial disputes and the differences,” she told reporters. “We do not think it’s a good idea to spread the sense of tension in this region.”

China Reliance

Southeast Asia is growing more reliant on trade with China, which is a gateway for shipments to advanced economies, according to the Organization for Economic Cooperation and Development. The RCEP includes China, Japan, India, South Korea, Australia and New Zealand, an area with more than 3 billion people representing about a quarter of the world economy, according to data compiled by Bloomberg.

The 16 countries are targeting to complete negotiations by 2015, Singapore Trade Minister Lim Hng Kiang told the Straits Times newspaper Nov. 17. TPP countries aim to complete the agreement by next October, Australian Prime Minister Julia Gillard told reporters yesterday. Her country is one of six involved in both sets of trade talks.

‘Two Pathways’

“We now look like we’re going to have two pathways to the one destination, a Free Trade Area of Asia and the Pacific,” Craig Emerson, Australia’s trade minister, told reporters. “This is very heartening and if one set of negotiations lends momentum to the other set of negotiations, that is all good and that is entirely possible.”

The U.S. describes the TPP as a “21st century” agreement that seeks to uphold labor rights, reform state-owned enterprises and instill stricter protections for patents in addition to tackling traditional issues such as tariffs and market access. The TPP would be the first trade deal negotiated by the Obama administration and would be the biggest for the U.S. since the North American Free Trade Agreement.

“The TPP will lower barriers, raise standards, and drive long-term growth across the region,” Clinton said in Singapore on Nov. 17. “Better jobs with higher wages and safer working conditions — including for women, migrant workers, and others too often excluded from the formal economy — will help build Asia’s middle class and rebalance the global economy.”

‘Help the World’

RCEP on the other hand is “aimed at engaging Asean’s external partners in a new broader and deeper economic partnership agreement,” said Termsak Chalermpalanupap, a visiting research fellow at the Institute of Southeast Asian Studies in Singapore. Asean is attempting to create an economic zone modeled after the European Union, without a common currency, by the end of 2015.

Indonesia, Southeast Asia’s biggest economy, will be putting all its “energy and resources” on the Asean-led deal, Trade Minister Gita Wirjawan said in Phnom Penh on Nov. 17. Indonesia’s government is unsure if the TPP would be “net beneficial” to the country, he said.

“Some of us are joining the discussion on the TPP, those who are ready, those who are willing and those who have less problems in the complex discussion,” Surin Pitsuwan, Asean’s secretary-general, told Bloomberg Television on Nov. 19. “But here in the region all 16 of us are working on the new architecture so that we can make use of the existing free-trade agreements that we already have. We need to work together to move forward so that we can help the world.”